CANBERRA (Reuters) - Australia is set to slap a carbon tax of A$23 a metric ton ($24.60) on its major emitters, newspapers said on Thursday, but it has halved the number of companies liable for the tax in a bid to overcome hostility to the policy.
The ruling Labor party is due on Sunday to announce its third attempt in as many years to make polluters pay for their carbon emissions with a policy which recent polls show is opposed by 60 percent of voters and chunks of industry.
Prime Minister Julia Gillard declined to confirm the newspaper reports, but a tax of A$23 a metric ton would be roughly in line with market expectations and on a par with the market-based price of emissions in Europe.
“You will need to wait till Sunday. I’m not going to play any games about the carbon price. You will see the details on Sunday,” she told Sky TV in an interview.
Gillard confirmed the number of companies liable for the tax would be 500, half the number that would have had to pay under the previous carbon-reduction plan rejected by parliament in 2009.
But she denied she was substantially watering down the scheme, and confirmed it would cut carbon pollution by 160 million metric tons by 2020, matching the government target to cut emissions by five percent based on year 2000 levels.
“This is a scheme where we have made coverage choices, but it’s focused on our biggest polluters, the companies causing the biggest pollution, for our nation, in our economy.”
The government has previously said Australia’s top 50 polluting companies account for around two thirds of emissions to be covered by the carbon tax.
Those companies include electricity generators such as International Power, majority owned by GDF Suez, TRUenergy, owned by Hong Kong’s CLP Holdings, Australia’s largest steelmakers BlueScope and OneSteel Ltd as well as global resource companies such as Rio Tinto, BHP Billiton and Woodside Petroleum.
But big business is set to receive compensation.
Export exposed companies will receive up to 90 percent of free carbon permits, while steel makers will receive up to 95 percent of free permits, with reports saying they could be shielded from the carbon tax for the first few years.
Coal miners and coal fired power generators are also set to receive considerable assistance and generators are also likely to receive compensation.
The government is also considering a A$3 billion package to promote clean energy, media reported this week.
Gillard’s fragile government plans to impose a tax on carbon emissions from mid-2012 before moving to a carbon-trading system three to five years later, under which the major polluters will need to buy carbon permits on an open market.
Even after Sunday’s announcement, financial markets are unlikely to fully price in the new policy, given the opposition has been playing on public fears that a carbon tax could mean sharply higher power bills in a country where coal-fired electricity accounts for almost 80 percent of supply.
Power traders said the tax was unlikely to flow through completely to the electricity market until the policy, described as a reckless and economically dangerous move by the conservative opposition, is approved by parliament.
“They still have to get this legislation up, so you will never see it 100 percent priced in (until then),” said David Guiver, head of electricity trading at ERM Power.
In order to ease the policy’s passage through parliament and win public support, Gillard has narrowed the scope of the policy, announcing pump petrol would be exempt from the tax.
Deutsche Bank environment analyst Tim Jordan said a A$23 price would be a solid start to making cuts in greenhouse gas emissions by one of the world’s top per capita emitters.
“If it covers the top 500 emitters than it will cover most of Australia’s carbon pollution, so it could still be an effective scheme and could be a good start,” Jordan said.
In a recent Reuters poll, analysts on average forecast 2012 European emissions allowances or EUAs at 20.38 euros ($29.567)and forecast certified emissions reductions or CERs at 15.90 euros. [ID:nLDE75K0FN] European EUAs for December 2012 last settled at 17.90 euros on Bluenext.
Electricity traders said they did not expect a carbon tax of A$23 a metric ton to have a major impact on power futures, with one saying that at A$23 a metric ton, about 75 percent of the price was already embedded in futures prices.
The new policy stands a much greater chance of passing through parliament, given Green MPs hold the balance of power in the upper house of parliament after elections last year.
The overall cost to the economy of the plan, which was originally intended to be broadly revenue neutral, has blown out to about A$4 billion over four years from its start on July 1 next year, with most of the costs from implementation, The Age newspaper said on Thursday.
Previous Treasury Department modeling has suggested that a A$23 a metric ton price would raise electricity prices by 10 to 15 percent, with the cost of food increasing about 1 percent.
($1 = 0.935 Australian Dollars)($1 = 0.689 Euros)
Additional reporting by Balazs Koranyi, Mark Bendeich in Sydney and James Grubel in Canberra; Editing by Ed Davies and Sanjeev Miglani